China has initiated a phase-out of the long-standing consumption-tax exemption for lithium batteries. Starting September 1, 2026, lithium primary and rechargeable batteries are subject to a 2% consumption tax, which will increase to 4% on September 1, 2027.
The tax policy shift impacts the electric vehicle supply chain. For a vehicle with a 60 kWh battery, the 2% tax rate adds approximately ¥438 ($62) to production costs, while the 4% rate increases this burden to ¥876 ($125).
Alternative technologies remain exempt from this consumption tax until December 31, 2028, including sodium-ion batteries, solid-state batteries, and fuel cells. This exemption is expected to save buyers roughly $200 per vehicle.
Changes to the broader tax system include the replacement of the full purchase-tax exemption for new-energy vehicles with a 50% reduction as of January 1, 2026. This reduction is capped at ¥15,000 ($2,200) per vehicle.
Additionally, preferential vehicle-and-vessel tax treatment for energy-efficient, plug-in hybrid, and commercial electric vehicles will be withdrawn starting January 1, 2027. This ends a 15-year policy of tax relief for these categories.